Dow Jones futures and S&P 500 futures rose slightly Sunday evening, while Nasdaq futures edged lower. The price of Bitcoin and Ethereum plunged Saturday, the latest sign of a "risk-off" mindset hitting financial markets. But cryptocurrencies rebounded by Sunday.
XThe stock market suffered sharp losses last week, with the major indexes shrugging off short-lived rebounds to close below key moving averages. Apple stock and Tesla are among key stocks to watch in the days ahead.
DocuSign (DOCU), a key 2020 winner, crashed Friday as hard times hit the software sector. But the writing was already on the wall for the e-signature leader.
Adobe (ADBE), which had held up relatively well in recent weeks, finally tumbled on Friday. Microsoft (MSFT) and Nvidia stock are starting to show some strain. Tesla stock faces a key test as EV rivals such after Lucid (LCID), Rivian Automotive (RIVN), Xpeng (XPEV) and Li Auto (LI) plunged.
Apple (AAPL) continues to hold up, closing with a weekly gain.
A more-hawkish Fed and omicron variant fears are two catalysts for the recent sell-off, but what the market is doing matters far more than why. Investors should be playing defense in the current market environment, cutting exposure and not looking to make new buys.
Tesla (TSLA), Microsoft, Nvidia (NVDA) and Adobe stock are on IBD Leaderboard. MSFT stock and Adobe are on IBD Long-Term Leaders. Tesla, Nvidia, Microsoft and XPEV stock are on the IBD 50.
The video embedded in this article reviewed the market action in detail and analyzed DOCU stock, Adobe and Tesla.
Bitcoin Price, Cryptocurrencies Off Lows
The price of Bitcoin plunged early Saturday to just above $42,000. The pioneer digital currency has rebounded somewhat to above $49,000, but that's it's still well below Friday afternoon levels, according to Coindesk. Ethereum is near $4,200, also well off Saturday morning lows just above $3,500 and about where it was at Friday's stock market close.
Both have pulled back from early November peaks, especially Bitcoin.
The price of Bitcoin hit a record of $68,990.90, around the time the first Bitcoin futures ETFs launched. The cryptocurrency tried to find support around its 50-day line but retreated late last week.
The crypto sell-off comes as financial assets are under pressure due to the Omicron Covid variant and hawkish Fed rhetoric as it confronts not-so-transitory inflation.
Bitcoin-related such as Marathon Digital Technology (MARA), Hut 8 Mining (HUT) and Coinbase (COIN) fell sharply on Friday. They could be in for a rough Monday if Bitcoin doesn't bounce back.
Dow Jones Futures Today
Dow Jones futures rose 0.45% vs. fair value. S&P 500 futures climbed 0.3% and Nasdaq 100 futures were flat.
Remember that overnight action in Dow futures and elsewhere doesn't necessarily translate into actual trading in the next regular stock market session.
Join IBD experts as they analyze actionable stocks in the stock market rally on IBD Live
Coronavirus News
Coronavirus cases worldwide reached 226.10 million. Covid-19 deaths topped 5.27 million.
Coronavirus cases in the U.S. have hit 49.95 million, with deaths above 808,000.
The omicron Covid variant has been identified in dozens of countries. Early indications are that it's more infectious than previous strains, including the delta variant. But so far most cases have been mild. Many of those cases involve people who are vaccinated, suggesting that vaccines provide solid protection against hospitalizations and deaths. But these are early findings or informed guesses for now.
Stock Market Last Week
The stock market rally tried to rebound on Monday and Thursday, but the selling pressure continued, especially for techs and small caps.
The Dow Jones Industrial Average fell 0.9% in last week's stock market trading. The S&P 500 index lost 1.2%. The Nasdaq composite skidded 2.6%. The small-cap Russell 2000 tumbled 3.7%.
The 10-year Treasury yield gave up 14% basis points to 1.34%, with most of that decline on Friday. As recently as Nov. 24, the 10-year yield hit 1.69%, a seven-month high.
ETFs
Among the best ETFs, the Innovator IBD 50 ETF (FFTY) tumbled 6.3% last week, while the Innovator IBD Breakout Opportunities ETF (BOUT) gave up 2.4%. The iShares Expanded Tech-Software Sector ETF (IGV) plunged 6.6%. Microsoft stock and Adobe are major IGV holdings, with DOCU stock also in the ETF. The VanEck Vectors Semiconductor ETF (SMH) edged up 0.6%. Nvidia stock is a key SMH holding.
SPDR S&P Metals & Mining ETF (XME) retreated 4.6% and Global X U.S. Infrastructure Development ETF (PAVE) fell 1.85%%. U.S. Global Jets ETF (JETS) lost 2.1% for the week, even with Thursday's 6.1% bounce. SPDR S&P Homebuilders ETF (XHB) edged up 0.4%, with actual builders looking strong. The Energy Select SPDR ETF (XLE) dipped 0.8% and the Financial Select SPDR ETF (XLF) slid 2%.
Reflecting more-speculative story stocks, ARK Innovation ETF (ARKK) dived 12.7% and ARK Genomics ETF (ARKG) 9.7%, both at 52-week lows. Tesla stock is still the No. 1 holding across ARK Invest's ETFs. But Cathie Wood has been selling TSLA and other high-priced holdings while continuing to load up on beaten-down highly valued techs, especially software. ARK also recently bought some XPEV stock.
Five Best Chinese Stocks To Watch Now
DocuSign Stock
DocuSign stock cratered 42% on Friday after giving weak guidance. But the highly valued software maker had flashed several sell signals along the way, whether you bought near traditional buy points or at an early entry in June. After spiking higher on earnings on Sept. 3, DOCU sold off hard, breaking decisively through its 50-day line. This was a clear signal for anyone buying near record highs. By early October, DocuSign had nearly round-tripped the early entry gain, but it did bounce off its 200-day line. Then in November, DOCU stock plunged through its 50-day line and eventually its 200-day line, wiping out all its recent gains heading into earnings, with other hot software stocks tumbling.
Adobe Stock
Adobe stock plunged Friday, down 8.2% to 616.53. Shares decisively broke the 659.29 cup-with-handle buy point and the 50-day line, according to MarketSmith analysis. ADBE stock broke out in early November, and struggled to make much headway, but its relative strength line trended higher during the month. But with markets weakening and software names crashing, it's hard for even institutional leaders to hold up.
Adobe and DocuSign are competitors in some markets.
Microsoft Stock
Microsoft stock fell 2% on Friday and for the week, to 323.01, following a 3.9% slide the week before. MSFT stock is far from broken. But after a mid-October breakout, shares trended steadily higher, riding the 10-day or 21-day lines. Now it's testing the 50-day and 10-week lines. Breaking those levels decisively would also nearly wipe out recent gains, a fairly strong sell signal for recent buyers.
Nvidia Stock
Nvidia stock also is far from broken. Shares fell 4.5% on Friday, though they found support at the 21-day line. The 50-day line is still a long way off. Investors could certainly choose to hold NVDA stock here. Depending on your conviction in the name or your investing style, you could choose to take partial profits, either here or with a decisive 21-day line break.
Meanwhile, Nvidia rival and chip leader peer Advanced Micro Devices (AMD) sank 7% last week, breaking through its 21-day line. AMD stock also is well above its 50-day line.
Tesla Stock
Tesla stock fell 6.4% to 1,014.97 on Friday, moving decisively below its 21-day line. It's closing in on the 1,000 price level as well the 50-day and 10-week lines. Just below those areas is the Nov. 15 low. If TSLA stock can find support around here — perhaps briefly undercutting these levels to flush out weak holders — it would be a positive sign. Tesla stock could be well on its way to forming a new base. But with the market acting so poorly and other EV stocks breaking down, investors should be cautious. It would not be a shock if Tesla suffered a bigger sell-off, much like Adobe did Friday.
While it's good for TSLA stock bulls that the EV giant is leading its group, it's not exactly great news that EV startups are tumbling. Rivian stock sank 6.65% last week to 104.67, getting close to a post-IPO low. Expect a slew of post-IPO analyst initiations by Monday's open, with Wedbush rating RIVN stock a buy with a 130 price target.
Lucid stock skidded 8.6% last week, though it's not too far from recent highs. Xpeng stock and Li Auto stock plunged decisively below buy points on China delisting fears, with massive losses from Wednesday's intraday highs.
As for Tesla, the EV maker released FSD Beta 10.6 over the weekend, the latest version of its driver-assist system.
Apple Stock
Apple stock fell back from Wednesday's all-time high of 171.30, but still climbed 3.2% to 161.84 for the week. Shares haven't even touched their 21-day moving average. AAPL stock is one of the last tech stocks to hold up well. Can that continue?
Stock Market Analysis
The stock market suffered another bout of selling, with the Nasdaq breaking back below the 50-day line and undercutting Wednesday's lows. The S&P 500 also fell below its 50-day line and just undercut Wednesday's low. The Dow Jones barely dipped Friday but fell for a fourth straight week. The Russell 2000 is well below its 200-day line, setting fresh multimonth lows.
The stock market has sold off sharply in the past few weeks. There have been a few rebound attempts along the way, luring investors back in. But those have lasted a day, or less, with the Nasdaq on Friday easily wiping out Thursday's gains.
Huge sectors of the market are heavily damaged or broken. Even institutional quality names such as Microsoft and Nvidia stock are starting to buckle.
The advance-decline lines, after Thursday's brief respite, resumed their precipitous retreat.
The macroenvironment could be a lose-lose situation. If omicron proves to be a major health threat, then coronavirus restrictions, social distancing and people staying out of the labor force could chill the economy while exacerbating many shortages. If omicron turns out to be a blip, then the Fed may step up its bond taper to head off inflation.
Neither scenario seems particularly attractive for the stock market.
REITs are still holding up, while homebuilders and auto parts retailers are doing well. These are defensive and/or low interest plays. But they carry risks too. If the market sells off hard, they may not be able to hold up. If the market rebounds and Treasury yields rise, these sectors could lag.
But don't try to guess how the market or various stocks will behave. Pay attention to what the market and leading stocks are doing now. Right now, they are misbehaving.
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What To Do Now
The stock market has weakened considerably in the past few weeks. The near-term outlook for the broader market is poor. Breakouts and other entries have failed. Many former highfliers have crashed. Leading stocks are breaking down, with even remaining holdouts starting to show strain, including Tesla, Nvidia and Microsoft. Apple stock had a good week, despite pulling back from highs. But one good Apple can't offset a rotten barrel.
This is not a time to be buying stocks, period. Don't let a Monday bounce at the open or even all day draw you in, even to a big winner such as Tesla or Nvidia stock. The market needs to show real strength before investors should commit new money.
Going to cash or having a limited exposure to a few core holdings of winning stocks are sound strategies.
Perhaps as investors get more clarity on the omicron variant and Fed policy, the market will make a new run. So investors should be focusing on reworking their watchlists. If you haven't updated those lists in a few weeks, get ready for a big makeover. Focus on stocks with strong or rising RS lines. And keep updating. Adobe stock was one to watch, until Friday.
Maybe Tesla stock, Microsoft or even Apple will break down in the weeks ahead, or they could hold up relatively well and be among the next crop of leaders. That's why this is a time to watch, not buy.
Read The Big Picture every day to stay in sync with the market direction and leading stocks and sectors.
Please follow Ed Carson on Twitter at @IBD_ECarson for stock market updates and more.
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